The Euro struggled to hold its ground even after the European Central Bank kept the benchmark interest rate at 1.50%, and we may see the single-currency continue to trade heavy over the near-term as market participants speculate the Governing Council to expand monetary policy further. As the ECB keeps borrowing costs on hold, we may see the Governing Council show an increased willingness to expand its nonstandard measures, and speculation for additional monetary support is likely to weigh on the single-currency as interest rate expectations falter.

Indeed, ECB President Jean-Claude Trichet noted that the committee discussed scaling back the rate hikes from earlier this year, and the Governing Council may step up its efforts to shore up the real economy as the region faces ‘intensified downside risks.’ As the ECB expands its nonstandard measures to ease the ongoing turmoil within the financial system, we may see an increased reliance on the central bank to stimulate the ailing economy, and the council may see a growing argument the bring the interest rate down from 1.50% as the slowing recovery in Europe dampens the outlook for inflation. In turn, we may see the rebound from 1.3145 taper off in the days ahead, and the exchange rate may make another run at the 38.2% Fibonacci retracement from the 2009 high to the 2010 low around 1.3100 as central bank shows an increased willingness to ease policy further.

British Pound: Holds Above 38.2% Fib Even As BoE Expands QE

The British Pound tumbled lower after the Bank of England surprised the markets and expanded its asset purchase program by another GBP 75B, but it seems as though we will see the GBP/USD consolidate over the remainder of the week as price action holds above the 38.2% Fibonacci retracement from the 2009 low to high around 1.5250. As the BoE sees an increased risk of undershooting the 2% target for inflation, we may see the MPC carry its easing cycle into the following year, and the committee may continue to shore up the real economy as the U.K. faces a growing risk of a double-dip recession. In turn, it seems as though it will be just a matter of time before we see the downward momentum in the GBP/USD gather pace, and we may see the exchange rate fall back towards the 61.8% Fib around 1.4820-50 as the fundamental outlook for Britain deteriorates.

U.S. Dollar:Regains Footing On Risk Aversion, All Eyes On NFP’s

U.S. dollar price action was largely mixed during the overnight trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker:USDOLLAR) paring the overnight advance to 10,069, but we may see the greenback gain ground throughout the North American session as market participants scale back their appetite for risk. As the economic docket remains fairly light for Thursday, risk trends are likely to dictate price action for the majors, but we may see the USD consolidate ahead of the U.S. Non-Farm Payrolls report as the data is expected to show a protracted recovery in the labor market.

--- Written byDavid Song, Currency Analyst

To contactDavid, e-maildsong@dailyfx.com. Follow me on Twitter at @DavidJSong

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Expands policy as MPC sees risk of undershooting the 2% target for inflation.

GBP

11:00

Bank of England Asset Purchase Target

200B

275B

EUR

11:45

European Central Bank Interest Rate Decision

1.50%

1.50%

Increases its nonstandard measures to shore up the financial system.

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DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.